About two decades ago, if you did not have 20% of the down payment for buying a property, not many banks would have entertained your mortgage application. But times and changed and how. Today a down payment of around 5% is good enough to buy a commercial property. But is a zero down payment realistic? The answer is yes, but it has its own baggage of certain terms and conditions. Read on to know more.
Suppose, a property is evaluated at $100,000. You sit down with the bank officials to discuss the interest rates, repayment plans, foreclosure charges etc. The bank is willing to finance 90% of the total amount, leaving you with round about $10,000 as a down payment. What if you propose a second loan of $10,000 at a higher interest rate. If you have a decent credit rating and are willing to pay a little higher interest rate, the bank might finance your down payment, with you buying the property without paying a single dime as down payment. But, you have to keep in mind that every month you would be liable to pay monthly installments on both the loans, and it may take a huge chunk out of your salary. Also, personal loans charge the higher interest rates - roughly around 20%, and you will have to pay a lot extra than you would have taken.
Rural Development Plans
Another way of buying a commercial property is to apply with the USDA rural development plans. It provides you with 100% financing for your home purchases and one does not need to be a first time buyer to qualify. Some of the benefits of buying a home this way is that there is no cap on the purchase limit and you can include the repairs and improvements in your loan. The property that you want to buy should be in a qualifying area as per the USDA rural development guidelines.
Veteran Affairs Loans
Veteran affairs loans allow veterans to buy mortgages with no money down. One has to meet all the requirements set up by the United States Department of Veteran Affairs. People who are eligible for VA loans are veterans, active duty personnel, National Guard members and some surviving spouses. You need to have documented proofs to apply for a VA loan.
These were some options for you if you are thinking of buying a property with little or no initial payment. If you are eligible for a no down payment mortgage loan, should you go for it? You should definitely think about it, but before doing that, it is essential that you have a clarity on its disadvantages.
- If you do not pay anything up while buying a property, you are definitely going to pay higher mortgage rates and your monthly payments would also be higher.
- When you buy a property with zero down-payment, you would not get all the choices to make, and you may need to make a few compromises.
The sub-prime crisis was a result of too many people taking mortgage loan and then defaulting on their payments. While a zero down-payment may work for people who are spending more money by paying rents etc., one should carefully think about all the pros and cons of a zero down-payment loan before taking one up. I hope this article would have helped you to know how to buy commercial property with no money down and its financial implications.